Venture capital (VC) firms are facing a brutal homecoming. With recent turbulence in public markets, both earlier and later-stage startups are experiencing some unease. The volatility has definitely increased, especially after U.S. President Donald Trump extended the use of such tariffs to several other countries. This decision led to the largest drop in history of tech stocks. Indeed, in the wake of these economic headwinds, numerous large tech unicorns—including Klarna and StubHub—have opted to delay their initial public offerings (IPOs).
For later-stage firms, the impact of public market swings is clearer and more directly felt than for their early-stage peers. The IPO milestone acts like a major hurdle in this respect. Aside from Airbnb, Klarna and StubHub have recently filed their IPO prospectuses. The recent market upheaval due to the COVID-19 pandemic has caused them to reconsider their strategic plans. The effect of this uncertainty on investor and startup founder confidence is deafening.
“The equivalence shouldn’t be lost on people – there’s a very real danger,” Tobias Bengtsdahl, partner at VC firm Antler Nordics fund told this serious matter.
“No one can go out with this turbulence.” – Tobias Bengtsdahl
With the hostile climate, many have been trying to pivot and rethink their game plan. Bengtsdahl explained the cascading impacts of the market crash, saying,
“When the market plunges like it has now… you have to do the same prediction on the private markets.”
The implications extend beyond immediate IPO plans. Limited partners — corporate investors, university endowments, and the like — invest in these venture funds expecting to make a lot of money. They’re under a different kind of pressure with fewer opportunities for profitable exits. A venture fund has a maximum life of ten years. At the moment, general partners are in a tough spot when it comes to doing right by limited partners.
Over the last several months, that uncertainty in the market has led to rising concerns around valuations. Despite the drop in public stocks, Bengtsdahl asserted that venture firms do not adjust their startup valuations solely based on market performance.
“We don’t change the valuations of our startups just because the stock market goes down.” – Tobias Bengtsdahl
He punted on the fact that these dynamics make a huge difference to funding opportunities for startups.
“That has a huge impact on funds raising right now and startups raising from multi-stage investors.” – Tobias Bengtsdahl
This temporary slowdown in IPO activity is seen as a normative reaction to the continuing market volatility. Malhi, a veteran player in the VC space, sounded a hopeful note on coming clarity when stability arrives.
“The short-term pause in IPO activity is a natural response to recent market turbulence, and we can expect to have more clarity on company positions once some sense of stability is restored.” – Malhi
Despite the confusion, many analysts now argue that Europe’s private tech startups are in a strong position to have a moment to thrive. Malhi warned that talent and liquidity would begin to view the U.S. environment as more inhospitable. Instead, they could refocus their ambitions to Europe.
“If talent and liquidity find the U.S. environment less hospitable, that flow has to go somewhere, and Europe has a chance to benefit.” – Malhi
PSV Foundry CEO Piron, a veteran of Intuit, Amazon and Silver Spring Networks, echoed this feeling. He claimed that when it comes to responding to these challenges, Europe is becoming more united.
“Europe is moving closer together amid the turbulence.” – Christel Piron
Most notably, she pointed out a growing trend of intentionality among founders. Most importantly, perhaps, many are deciding that they will remain here in Europe because they owe it to the local community to help create a robust tech ecosystem.
“We’re seeing more founders choosing to stay and scale here, driven by a growing sense of responsibility to help build a resilient European tech nation.” – Christel Piron
Looking forward, most M&A watchers predict that the deal-making will continue to be robust. This remains the case even as the global IPO window begins to shut. Malhi expressed hope that stakeholders would push for “problem-solving” exits as a second, preferable route.
“If the global IPO window does narrow in the longer term, then we would still expect a strong M&A landscape, as stakeholders seek ‘problem-solving’ exits.” – Malhi
He predicted a boon for later-stage fundraising. It’s the perfect time for private companies to try and bridge those capital gaps as they scan the horizon for new opportunities.
“We may also see an increase in later-stage fundraises, as companies look to bridge the capital gap until they can find such opportunities, albeit at potentially lower valuations.” – Malhi
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